Hancock to sell stake in Alpha coalmine

The Hancock Coal group has signed up potential customers from five countries and confirmed it is negotiating a partial sale of its $7.5 billion Alpha thermal coal project in central Queensland’s Galilee Basin to fund the development of Australia’s largest coalmine.

Chairman and director
Gina Rinehart
launched a $100 million test pit at the coal group’s Alpha project on Saturday and expects to approve development of the full project in September 2011, with first production in early 2014.

Engineering groups Ausenco and WorleyParsons are set to announce as early as today that they have been awarded a four-year project management contract worth $285 million.

Alpha would be the first coalmine in Australia to have a dedicated railway and port like the iron ore mines in Western Australia and would be accompanied by a $7.5 billion project of equal size at Hancock’s neighbouring Kevin’s Corner site.

To date, Hancock has used proceeds from its Hope Downs iron ore joint venture with Rio Tinto to fund its coal investments in Queensland.

Hancock has signed letters of intent with potential coal customers, including utility groups, in five countries and is separately seeking to sell equity in Alpha to help fund the project.

The Australian Financial Review last month revealed Hancock was in talks to sell part of the Alpha project and up to all of Kevin’s Corner to assist with financing the development. “There will be an announcement in a short time about another form of funding that we are doing and in addition to that another funding which will take a lot of money to do," Ms Rinehart said.

“The whole idea is to get equity participants into the project."

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“We’ll get more comfort as we finish up the [bankable feasibility study in March], get through more approvals, this sort of thing," she said. “We will have to get in equity, because it is a very significant project and then we’ll be doing all sorts of financing. A lot of project financing, but also equipment financing."

The Alpha test pit is designed to export around 150,000 tonnes of coal to Asia for testing in power stations.

Representatives from China Coal, Taiwan’s Taipower, Japan’s Marubeni and Korea South East Power were present at the opening ceremony on Saturday.

Taipower’s Stanley Tsai told the AFR his company had not yet signed a letter of intent to buy coal, but it was interested in taking a 5 to 10 per cent equity stake in the project with accompanying contracts. He said it was possible investors from Japan and Korea would enter similar deals.

Hancock is also in talks with other potential partners about investing in its projects, including mining companies and infrastructure groups.

Other miners with projects in the Galilee Basin, although less advanced than Hancock’s, include India’s Adani, Clive Palmer’s Mineralogy, AMCI and Brazilian miner Vale.

Hancock has reserved up to 60 million tonnes of port capacity at an expansion of Abbot Point for its project, while the others are yet to secure capacity.